Article 53 – Get real, stay true to your dreams

by Tan Thiam Hock

THIS is my 52nd and last article for StarBizWeek. It started more than a year ago out of a challenge from my golf buddy to communicate with local entrepreneurs in a simple and straightforward manner.

Since I am a simple and straightforward person, I believe I have carried out my duties to the letter even though most of the time, my articles did not make much business sense. But I did try to inject a business idea or concept in each weekly article which I hope did not put you in a further state of confusion.

I have not been friendly to entrepreneur wannabes who wanted to start a business without a solid business model nor having sufficient funding in place. I hate to see precious capital and talent being wasted just to please the ego of being your own boss. Starting a new business is exhilarating and exciting but closing down is painful to your pocket and your soul. Some people healed slowly and some did not recover at all.

If you really do want to be on your own, may I suggest you prepare well, seek experienced advice and stay humble. Lower your expectations and work out survival plans on worst case scenarios. If you are worse off income-wise, are you still keen to continue? Get real but stay true to your dreams.

I have great admiration for the AirAsia business model, not so much for its originality but more for its single-minded execution on its core strategy of low-cost high-volume. The whole organisation is fixated on lowering cost across all expense so that lower priced tickets can be offered continuously to secure constant high volume on an Internet platform that works tirelessly 24/7.

This business model is easy to scale across the region which adds purchasing power when negotiating with Airbus. All airlines pay the same fuel cost but AirAsia, with newer and lower cost planes, are much more fuel-efficient and if you add its competitive edge of having the lowest operating cost per seat, it now has a sustainable business model. While Ryanair dominates Europe, AirAsia will dominate the Asian airspace.

While the low-cost model has been proven successful over short quick turnaround flights of less than five hours, I was sceptical from the beginning of the viability of the long haul low-cost operator AirAsia X. True enough, the numbers did not work out for 13-hour flights to London and Paris. But it has found a profitable niche in six to seven-hour direct flights within Asia. The management has been decisive (no political interference) in pulling out of unprofitable routes and concentrating all its resources on routes that makes commercial sense.

Just imagine the potential of AirAsia X if it is able to replicate its business model operating out of Indonesia to Australia or out of Japan to the Middle East and beyond.

That’s why I am looking forward to the listing of AirAsia X this year. It will be the first successful long haul low-cost airline in the world. Malaysia Boleh!

When you think you have a viable and sustainable model, stay true to your strategies and focus on executing the appropriate strategies across your entire organisation. If you are a five-star operator, make sure your organisation is able to deliver five-star services consistently to your customers.

If you have a business model that is able to scale across cultures and countries, your growth potential will reward you in multiples. Big dreams are for those who look beyond our small domestic market of 28 million people. But dreams will remain as dreams if you are not successful with your home market first. You should only replicate successful models.

If you do not find optimum success with your business model or defined strategies, be decisive and admit to yourself that it is not working as planned. Eat the humble pie and swiftly change direction or tweak your business model to find a sustainable and profitable niche where you can survive comfortably.

Do not be afraid to change and do not delay until the shit hits the fan. Unless you can go begging to the Government for more funds, it will be difficult for you to find friendly benefactors to help you then. Your business will suffer a slow and painful death and you will wish that you have not been on your own.

I have been active in the consumer product markets for the last 27 years and I have often wondered why the multinational companies make more money per dollar sales than my company. That is despite them paying higher salaries and spending more on advertising and promotions. I consoled myself then by reasoning that they had first mover advantage, better brand equity and they were smarter than me.

After looking closely at their numbers, I discovered that they have a higher selling price and a lower cost of goods which means their gross margins are easily 10% to 20% higher than mine. Their products fetch better prices because they spend more on branding and they have a lower cost of goods because they understand the supply chain system better than I did. They are brilliantly efficient in logistics and channel management.

To compete, I have to match them in all aspects. Share of voice, understanding the supply chain forward and backward and having an efficient logistic set up. But you can only compete if you have comparable margins. My business model was subsequently amended over a few years to a comparable high margin model with similar A&P spend.

Building brand equity

High margins mean lower break-even point and less pressure on volume sales. Less working capital required means less financial risk. It is easier to make a profit in a high margin business but you have to find the margins in the value chain. Apple makes 30% profit on sales but its OEM manufacturer Foxconn makes only 1.5% profit. Our telco companies make 30% on sales but their prepaid card wholesalers make a 2% gross margin. Soft dollars versus hard dollars.

To earn the soft dollars, you need to build your brand equity. Whether it is product branding or corporate branding, you must be committed and consistent in promoting your brand. Margins for great brands differ substantially from commoditised generic products or services. Differentiate or suffer low margins always.

I particularly like SP Setia as a perfect example of how to build a strong corporate brand. However just as Tan Sri Tony Fernandes is synonymous with the AirAsia brand, Tan Sri Liew See Kin is the face of SP Setia. What will happen to the SP Setia brand after Liew leaves? Can he be replaced successfully by another brilliant marketeer from the new owner, PNB? Your guess is as good as mine.

There are many key words used by management professors to describe the hectic changes in the current business environment but my favourite phrase is the concept of disruption. Technological advancements disrupts technological laggards which disrupts our lifestyle as well. Phones gets smarter by the day, from voice to SMS to data to watching Astro on-the-go. Brands come and go at the speed of disruption. What was your favourite phone-brand five years ago? Can’t remember? Me too.

My thought process gets totally disrupted trying to figure out how to sell products to the Gen Y segment. They don’t watch TV and they don’t read newspapers. They socialise with screens and they communicate faceless through a “book”. They shop anytime in the Internet mall and they sleep in different time zones. As they are our biggest customer segment, we have to tweet them with respect. Or for the heck of it, just blog them into submission.

Gen Y and the Internet

Because of Gen Y and the Internet revolution, entrepreneurs are getting younger and younger. With a laptop, they trade anything and everything across countries like borderless pirates while prim and proper Gen X businessman worry about traditional sales team and distribution channels across the country. They collect cash in advance directly from consumers while Mr X gives credit to the trade. They have all the personal details of their customers and they are connected on a daily basis whereas Mr X can only guess that someone of a certain race, age and size has bought his products.

E-commerce will be the single biggest influence on rental rates of brick and mortar retail space. Already certain successful e-commerce products like books and music have decimated the traditional distribution channels of bookshops and music shops. The middleman’s job has been taken over by Amazon.com.

Now you see other products like shoes, apparels, contact lenses etc gaining popularity on e-commerce platforms. And retail prices trending downwards much to the delight of consumers.

The only option for traditional businesses threatened by the e-commerce wave is to join them. Sephora has seen its cosmetic and fragrance sales slowing down and rental rates of their shops going up. So it set up sephora.com which has been growing very well, protecting its overall market share in the luxury segment of cosmetics and fragrance.

For traditional media companies, all the newspapers have a similar e version now. Even though visibility of e advertising revenue is still shrouded in fog, they are prepared for any eventual switch by news hungry consumers to e-consumption. While Astro offers TV couch potatoes with Astro-on-the-go mobility, Media Prima countered with Tonton, an e-content platform where you can watch missed programmes on the net and on-the-go. Mind you, these massive investment and creative efforts are made just to ensure its business stay relevant in the fast changing landscape.

Just as I give an “A” to these top private companies for their innovative business acumen, the Government and the GLCs deserve an “E” for their involvement in business. I do agree that the Government should play a major role in sensitive sectors of the economy like utilities, education and national security but to be actively involved in all businesses competing with the private sector is counter productive and in most cases a waste of public money. Lack of competition breeds inefficiency and lethargy. Enough said.

I am pleased to note that there has been a major shift of public perception towards politicians being involved in business. Politicians should stay exclusively active in the political arena if they want to avoid unnecessary accusations, nasty tweets and rumoured scandals. A clean politician who cares and fights for the people that he represents will always be voted favourably by his constituents. I read that from Dummies for Politicians.

I was born in 1960 thus I was given a blue Identity card. Having been a Malaysian since birth, I grew up in Petaling Jaya and studied in local schools and Universiti Malaya. I have worked all my life in Malaysia. My wife is Malaysian and all my three children were born in Malaysia.

So you can imagine my outrage when I am called an immigrant by some senseless and dumb politicians out to score a point or two with their supporters. As a Malaysian would say “I so angry until I cannot speak.”

But speak out you must in the coming 13th General Eelection. Choose wisely and please vote for sincere and smart candidates. Avoid wolfs in sheep skin for the sake of our children’s future. Do not live to regret.

It has been a fun write for me the last 52 weeks and I must thank the StarBizWeek editorial team for sacrificing valuable space to accommodate my nonsensical and shallow articles. I hope I have given you some weekly chuckles and brought a wry smile on your face on lazy Saturday afternoons. I thank you for your kind patience. Goodbye.

The writer has decided to go e-communicado. For further nonsensical musings, stay in touch with him at thiamhock.com. You might just find some useful tips on your own.

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